The Irony Behind Elon Musk's New Jersey Conflict

Editor's Note: A prior version of this article appeared which overstated the impact of the $7,500 tax credit on electric vehicles. The Fool regrets the error.

Elon Musk hates it when the government picks winners and losers, unless he's the one getting the prize.

The South African-born founder of Tesla Motors (NASDAQ: TSLA) , SolarCity (NASDAQ: SCTY) , and Space Exploration Technologies (that's SpaceX to you) is on a PR crusade against New Jersey Gov. Chris Christie, whose support of that state's auto-dealership regulations predictably clashes with Musk's desire to forge boldly ahead in the rough-and-tumble world of unfettered free-market capitalism:

[T]he Administration and the [New Jersey Motor Vehicle Commission] are thwarting the Legislature and going beyond their authority to implement the state's laws at the behest of a special interest group looking to protect its monopoly at the expense of New Jersey consumers. This is an affront to the very concept of a free market [emphasis added].

But what does Elon Musk really know about competing in a "free" market, anyway? Since the PayPal buyout in 2002, Musk has founded three companies: a rocket builder (SpaceX), an electric-car company (Tesla), and a solar-panel installer (SolarCity). Eagle-eyed readers might recognize a common thread among these three enterprises -- all of them have been largely or entirely dependent on government support.

SpaceX's claim to be a "commercial" spaceflight company holds no water when one examines the company's sources of funding. With $1.3 billion in completed government contracts (the company's contracts with NASA alone already hold options that top out at $3.1 billion) following an early NASA cash infusion that exceeded the combined contribution of all private investors (SpaceX's private funding is listed as $245 million on CrunchBase; NASA's first development contract totaled $278 million and only required testing, not successful launches), SpaceX far more closely resembles an arm of the government than a truly independent venture.

Tesla, likewise, took in more money from the government than it ever raised from private sources. CrunchBase records $278 million in pre-IPO funding for Tesla, which was dwarfed in 2009 by a highly public government loan of $465 million. This government loan, incidentally, came less than a year after Tesla was forced to lay off much of its workforce and former R&D director Peter Zhou anonymously revealed that the company had only $9 million in the bank, in the process telling Valleywag that he could no longer "conscientiously be a bystander ... and allow my company to deceive the public and defraud our dear customers."

Source: Steve Jurvetson via Flickr.

Could Tesla have survived without Uncle Sam's helping hand? It's possible, and the company has paid its loan off well ahead of time, but it's easy to see why Musk preferred taking the government's money when you consider that the alternative -- raising venture capital -- would have diluted his stake. Considering that Musk's Tesla stock is now worth about $6.5 billion, the difference between taking government money and raising venture capital has probably been worth at least a billion dollars to him, if not more.

There is also the case of tax credits. Many of the 27,600 cars sold by Tesla has been the beneficiary of a $7,500 plug-in vehicle tax credit, which has given Tesla an indirect consumer-targeted government subsidy of more than $200 million by reducing the cars' true purchase price. The sale of zero-emission vehicle credits -- a state-level subsidy offered by 12 states, including New Jersey -- to other automakers has netted Tesla about $250 million since 2009. All told, the government's direct and indirect support of Tesla adds up to more than $900 million, a figure that lines up rather nicely with the company's cumulative capital expenditures of $818 million since 2009.

SolarCity, too, is hugely dependent on government support. On its website, the company eagerly touts the benefit of tax credits and rebates, which it claims can save homeowners up to 50% on their installation costs. SolarCity can count on at least 30% in federal tax credits for virtually all of its installations, which means that the company has received roughly $110 million in indirect subsidies in addition to its direct government funding, based on lifetime reported revenue of about $370 million. The tax credits apparently aren't enough for SolarCity, which jumped into a legal fight with the federal government last year by alleging that grants it's received -- which now add up to $422 million -- are less than it asked for. SolarCity told The Wall Street Journal last May that it should have received $8 million more. Does SolarCity really think that another $8 million would really help? Since 2009, the company has bled out at least $1.2 billion in negative cash flow, and since it recently delayed its 10-K filing, that number could jump again when last year's final results come in.

Source: User BrokenSphere via Wikimedia Commons.

Add the numbers up: $3 billion. That's how much money Elon Musk's three companies have received in direct and indirect government support over the years. Let's not even begin to count up the money the government (in the United States and elsewhere) has poured into research on spaceflight, batteries, and solar energy, to say nothing of the billions of tax dollars spent to promote electric cars and solar panels with the public.

Two years ago, Musk told the Los Angeles Times:

Government isn't that good at rapid advancement of technology. It tends to be better at funding basic research. To have things take off, you've got to have commercial companies do it.

That's a nice sentiment, and it's certainly a popular one among the Silicon Valley circles Musk travels in, but it doesn't seem to match up to the reality of Musk's business models. Not only has government funding given Musk a technological base to build on, it continues to give him a tremendous amount of financial support across three separate companies.

This revolutionary technology doesn't need the government to help it thriveEvery investor wants to get in on revolutionary ideas before they hit it big -- like buying PC maker Dell in the late 1980s, before the consumer computing boom, or purchasing stock in e-commerce pioneer Amazon.com in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hypergrowth markets. The real trick is to find a small-cap "pure play" and then watch as it grows in explosive fashion within its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 trillion industry. Click here to get the full story in this eye-opening report.

Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter, @TMFBiggles, for more insight into markets, history, and technology.

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.

Your claim that Space X is getting a helping hand because they have a contract to do work for the government casts immediate doubt and suspicion about anything else you have to say.

Space X is performing the same tasks that the government had been doing on it's own, at 1/10th the cost, saving Billions of $$$. It sounds more like the government is getting a helping hand from Elon Musk.

When foolish turns outright stupid, one has to stand up to it. Defending the NJ dealers is borderline criminal activity. Nothing about tesla is criminal, on the contrary it's a life line to this country where manufacturing has been gutted out or abused by special interest.

Everybody in this country takes subsidies of one kind or another. Did the author deduct for dependents on his income tax? That's one of millions of subsidies. So it becomes a silly argument over recipients of subsidy ie any subsidy for me is good but one for Tesla or anybody else is bad.

Blocking companies from selling their product at a fixed price is an entirely different matter, particularly when it's applied in a discriminatory way . Has NJ stopped Apple from selling in company stores? Or Kroger for selling Kroger brands . Etc. This isn't a subsidy, it's retraint of trade.

One of the things that encourage me about TSLA is the never ending stream of bearish articles.

I share your sentiment about the legions of Musk fans. And musk may be a hypocrite. However the reasons you have given are incorrect.

1) SolarCity would compete regardless. They are not going to leave money on the table though. That's stupid.

2) Tesla is doing quite fine everywhere in the world. And like SolarCity they will pick up all the money laid before them.

3) SpaceX is totally different. They are basically giving money away to our government. They have close to 50 flights already booked and only 12 of them are to our government. Of those 12 they are only charging $1.6 billion dollars each. Compare this to the Space Shuttle that cost the tax payers $1.5 billion per flight. To deliver an astronaut to the ISS cost $300 million. Musk is on track to deliver astronauts at $20 million each. Unfortunately though what NASA makes up on free support via SpaceX they pay for in terms of delays and false expectations. For instance the latest SpaceX rocket to the ISS was suppose to have left in October of last year. There have been eight or more cancelled flights, or delays if you will, so far. The last one was last Sunday...

So you need to get your facts straight. There are problems but you need to address them instead of getting it all wrong.

You guys are definitely wrong about Space X and the government contract. It was a competititve bid with some of it going to Space X and the rest going to several other players in the field. No where is this stated to be a grant of gov funds. It was a contract for services rendered! Try getting the facts streight before you publish you crappy bull.

First up, you write; "Every car the company has sold, all 27,600 or so of them, has been the beneficiary of a $7,500 plug-in vehicle tax credit,,"

This is a very American centric observation. Numerous cars have been sold outside the US. The $7,500 apply only to cars inside the US. This tax credit is also applicable to other BEV's and plug-in hybrids like the Volt (talk about subsidies, how much did GM get from the government?)

Second, name me one industry which does not get one kind of other support from the government. Even the oil industry with multiple billion dollars profit get subsidies. These subsidies dwarf in what Tesla is getting. What about the subsidies for Wall Street? Talk about hypocrisy...

I am surprised that you allow trash like this to be put on your site. At best it is just a laugh. At worst it encourages false rumors about amazing companies and the extraordinary very hard working people that run them.

Ignorance abounds in this article!!! If these are the kinds of people allowed to have and editorial on Motley Fool, I will be visiting less and less. It seems this site is turning into Seeking Alpha. Nothing but articles filled with lies meant to infect rationale thought by twisting truth.

This is all about government's obligation to protect and advance the interests of citizens and the public at large (not to a select group of auto dealers who are only interested in their own welfare). You have so missed the boat on this. I expect better out of Motley Fool.

The author's republican ideology is highly visible in his critique of TSLA. It is sad to see how propaganda can twist investor's capability to envision and invest in a better, cleaner future, which incidentally is also strongly supported by Govts around the world.

the Federal program that Tesla availed itself of, and the one that it's consumers have were created for what the government perceived as the common good,

1) to give the U.S. a competitive position in a potentially massive new industry arising from developing technology (read technology and manufacturing jobs),

2) to reduce the U.S. reliance on foreign oil and the consequences it brings (read soldiers dying in the middle east, and massive squandered tax dollars),

3) to give the people of the U.S, and the world for that matter, a greater chance of protecting the environment.

The Christie administrations action this week was directed to one purpose,

1) help a special interest group protect its monopoly at the expense of consumers and our free market.

whether you like the means of government involvement or not, the ends are so laughably incomparable, I echo the wonderment of other posters as to how Motley Fool could publish a piece such as this if they have any aspiration of being anything other than a clone of Seeking Alpha's valueless anything goes blog site.

Anyone chosing to attack the personal integrity of someone, anyone else, is out on a limb. To attack Elon Musk, one of the very few brilliant entrepreneurs of this century or any other century is ludicrous or simply sour grapes.

It's either that or you are in bed with the corrupt unions that have so plagued our nation. Free markets are just that.

To hold TESLA to some insane franchise/dealer (law?) is pure protectionism for the good old boy network that is a similitude of the inefficiency of governmental bureaucracy.

As long as politicians keep writing laws that interfere with or manipulate free markets, I congratulate those capable of deciphering the laws to their advantage.

I applaud Elon for his ability to use our legal system to his advantage and say more power to him.

If you don't like the fact that Elon Musk has used our system to his advantage, attack the government that has given his genius an avenue to exploit.

Good to see that all government and media don't have there blue eyed uniformed German goggles on when unfair Tesla handouts and business work arounds. Hope the govy holds them to the same business laws as everyone else.

Most of the items you outline are also available to anyone else in the "free" market not just Tesla, SpaceX, or SolarCity. These are businesses that like all businesses take advantage of every opportunity available to them. Is this not what we expect from them as investors or are we holding them to a higher standard simply because Elon is at the helm.

Whether it's considered a good or bad thing the U.S. government also operates in many way as part of the "free" market when it allows private companies to compete for contracts in the case of SpaceX. However I do not believe this makes Tesla or Elon hypocrites when they attempt to affront cronie capitalism from the likes of NJ or anywhere else. In the end this is good for America and good for the consumer.

I applaud his efforts and for my part I hope he continues to be the hypocrite you accuse him of being if it continues to make the world a better place. But to that end, really aren't we all likely to be hypocrites in some way? I'd argue his way is much better than most.

Any attempt to defend New Jersey's restraint of trade is deplorable. It is doubly deplorable when you use such bogus arguments as Elon Musk being in business merely to take advantage of government "subsidies". Shame on you!

This is perhaps the worst Motley Fool article I've ever read. Saying that SpaceX is dependant on the government ignores the fact that ULA (Boeing/Lockheed) is equally dependant. On top of that, Spacex doesn't require a *BILLION* dollar subsidy, above and beyond launch prices, to maintain it's facilities.

Tesla paid back it's DoE loan early - the only company to do that (Ford still owes billions, by comparison).

Solar City mostly operates on a lease-style business model.

General Motors cost the US taxpayers FAR more money in their bailout.

But even so - look at all the programs Elon's companies have taken advantage of - they are programs designed to get things going. Look at New Jersey's law - it's designed to stop innovators and protect useless middle men. Go ahead - tell me who's "using" the government for undesirable purposes.

His Gigafactory of old fashioned cells that Panasonic had problems with (they wanted to sell these for more than 10 years and they find a gogo) is certainly something to survive because he is running out of cash.

His model is not liberal: he relies on government and friends: he has never been profitable at the moment !!! And he doesn't want fair competition in dealer shops because he thinks he can tell lies to his customers: "no battery service" just software downloads (when everybody knows that it is 1 ppm/cell/year in the battery industry! Especially after a hard winter then summer !!!)

Look what GS Yuasa is able to do on Dreamliner!

He cannot fool dealers: they know what is warranty cost and recalls mean ...

He wants to build new factory of old cells, when new technology factories (in Korea) are running only 30% of their industrial capacity because the EV market doesn't work in Europe or in Asia (Renault, BYD ...)

Usually, for new batteries technologies (what is not TESLA), performances can double with improvements (capacity, life, power) but if he chose one that is already mature !

The "EV dream" comes in Europe every 10 years, each time it is a failure and we go back to hybrids ... Maybe you face it for the first time in US ...

When you know how much pollution do a battery to produce, you prefer hybrids as the battery is small ...

Do you know how much a plug is to maintain? That is why you need you own garage to plug your TESLA: it is not for cities, it is too expensive for city administrations, and you need one plug by car if slow charging ... Fast chargers are like 70 000 $ plus maintenance !!! The price of the car !!! Economically it is not viable ...

No marketing study was made?

Good for country side !!! Not for dense cities like in China or in Europe ...

In fact if I understand well what is happening: the stock is rising because people play against !

I sell short too ...

I really liked the company and so on, but I think bullsh...t is enough, there shall be no value in that, unless they can do a monopoly to cash the money back like Microsoft, but I doubt ...

When the stock will be to a more reasonable level, maybe I start to dream again... But at the moment it is like a nightmare ...

It is unbelievable to me that crap like this article is allowed in TMF. I am not going to rehash the many ways the writer and the piece is wrong, wrong, wrong as it has already been said many times over above this.

Calling his position criminal and defending Christie, who you would have thought as a conservative Republican he would be all for freedom of business, less regulation, etc. Instead, and this is not a political issue, but a business interests one, he gets paid and bamboozled by the dealerships lobbyists, who are all for less competition. They do not want to open the tap, and see other companies follow suit and bypassing the sacred dealership arrangement. So much for free market in NJ.

Mr. Planes, you should look for another line of work. Maybe writing fiction? Maybe work for Christie and write for his campaign? We do not need this drivel here.

Does the author know how many thousands of companies would not be in business without doing business with the government?

I'm curious as to why I don't see any rebuttal from the author regarding all these comments? If you are going to write something you should be ready to defend what you are saying.

Otherwise you might want to think about another profession, I hear that SolarCity has hundreds of job positions all across the country. Why don't you tell the thousands of people that Musk employs what I loser he is? Seriously.....

To me, the only thing that makes this a discussion at all is the fact that Christie is supposed to stand for Pro-business ,pick yourself up and get a job, take responsibility for yourself, get government out of your face, free enterprise, etc. If the writer of this article thinks Musk is a hypocrite, I'd really like to know what he thinks about Christie! Talk about hypocrites, Christie takes it to a new level!

Don't blame TMF for this politically driven diatribe. Alex Planes is not a TMF employee. He only writes articles which are pure opinion on his part. He is not a stock analyst. I wish the Motley Fool would stop paying for these trash articles with eye grabbing titles and content just to sell ads and try to gain new members.

If you join the TMF services, you will see the other side of this story written by real stock analysts.

How did you, fool, dare to criticize Elon? And in a direct, straightforward way, no less!

Shame, shame on you, bad boy!!

Although I must say that, despite really liking Elon, I do agree with your article, particularly this bit:

"Considering that Musk's Tesla stock is now worth about $6.5 billion, the difference between taking government money and raising venture capital has probably been worth at least a billion dollars to him, if not more."

Anyway, PLEASE tell me about this wonder-company WITHOUT having to listen to the ridiculously tedious presentation (I hate that about TMF, you can`t even pause the damn thing!!)

<i>If Elon Musk wants to build his companies on a mountain of government money, more power to him -- there's a system in place, and he knows how to play it. </i>

I've always considered this to be a significant part of the Elon Musk genius. He has precisely developed a method to navigate all of the government incentives out there to maximize shareholder value. TMFBiggles has gained a new follower today.